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Set up an owner's draw

An owner’s draw is a tax free transfer of money from the company to an owner. These wages are not subject to payroll tax filing and deposits, but are instead taxed on the individual level with annual tax returns. Typically owners of Sole Proprietorships and LLCs may choose to use this type of payment.

Owners who have benefits with Gusto must complete this step and set up an employee account so they can participate in the company's benefits package. Once an owner's draw is run, no deduction will appear on the paystub because owner's draws are pretax and the company is paying the full premium. However, this setup is required so that the owner can access benefits information and participate in annual open enrollment through their Gusto account. 

Note: If the owner does not plan on participating in benefits, they do not need to complete this step.

To set up the owner's draw for a new employee, follow these steps: 

  1. Click the Hiring tab.
  2. Click +Hire a new person on the right-hand side of the screen.
  3. Click Add New Employee.
  4. For Employee Type, select Owner's Draw.
  5. For Amount, add a default payment that the owner will withdraw per payroll, if applicable.
  6. On the Tax Details page you will be required to make a selection for withholdings, but this is just a placeholder as taxes will not be withheld on the Owner's Draw.
  7. Click Save and Continue.

To set up the owner's draw for an existing employee, follow these steps: 

  1. Click the People tab.
  2. Click the employees name.
  3. Click Edit under Compensation
  4. For Employee Type, select Owner's Draw.
  5. For Amount, add a default payment that the owner will withdraw per payroll, if applicable.
  6. Select the Effective pay period for the new compensation.
  7. Enter a Reason for change to note why this update is being made.
  8. Click Save.

The owner's draw will appear in regular payroll and can be processed with the rest of your employees' payments.

We currently do not have the ability to set up an owner to receive both a taxable salary and a non-taxed owner's draw. If you have an owner who is a W-2 employee, we recommend handling owner's draws outside of your Gusto account as we do not handle the taxes or filings for these distributions.

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